May 20, 2025 – Could Tariffs Provide an Economic Spark?

Economic Commentary

Thus far, we have only heard the negative side of the tariff forecasts.  These prognostications have centered upon slower economic growth and increased inflation, which is a pretty bleak scenario.  Few have talked about the threat of tariffs bringing a burst of economic activity, but this burst may actually happen within a few sectors of the economy.  These sectors included home building and the purchase of automobiles. Other sectors may be similarly affected as well—but for now we will focus upon these two.

Why could we have increased activity? The fear of missing out (FOMO) comes to mind.  If the price of building a home or importing cars is going to go up, consumers will rush to purchase these goods to “beat the increases.”  A similar phenomenon happens when mortgage interest rates are rising – people rush to purchase homes before rates go higher.  Indeed, we have seen isolated positive reports within the automotive and new home sectors in the past several weeks, though it is too early to coin this an authentic trend of some kind.

Here is the not so good news.  Any burst of activity caused by FOMO will be borrowing from the future. Thus, this possible short-term economic spark could serve to dampen economic growth later in the year. Of course, this is all speculation. We don’t know if the tariffs will last in the long run, let alone dampen economic activity.  But we feel that it is important to present all possibilities for the future, and this is one side of the equation that we don’t see analysts focusing upon very much.  On the other hand, it does highlight how much uncertainty has been thrust into the environment due to these policies. Certainly, it is going to be an interesting year.

Weekly Interest Rate Overview

The Markets. Mortgage rate daily volatility increased with the temporary easing of tariffs on China, but overall rates continued to remain within the same range as the past several weeks.  Even positive inflation news did not move the needle. According to the Freddie Mac weekly survey, 30-year fixed rates rose to 6.81% from 6.76% the week before. In addition, 15-year loans increased to 5.92%. A year ago, 30-year fixed rates averaged 7.02%, 0.21% higher than today. Attributed to Freddie Mac: “The 30-year fixed-rate mortgage remained below the 7% threshold for the 17th consecutive week. Stable mortgage rates coupled with moderately rising inventory are attracting homebuyers into the market, with purchase application activity up 18% from last year.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

Despite rising home prices and financial strain, 82% of Americans still consider owning a home part of the American Dream, according to Bankrate’s 2025 Home Affordability Survey. That figure is up from 78% in 2024 and surpasses aspirations like retirement (71%) or a successful career (66%). Americans consider homeownership to be the cornerstone of the American Dream, more so than anything else. This belief hasn’t wavered and has only gotten stronger despite increasing affordability challenges,” said Greg McBride, Chief Financial Analyst at Bankrate.  Affordability is the top obstacle for would-be homeowners. Among non-homeowners who desire to buy, 83% cite cost-related issues. Specifically, 59% say their income isn’t enough, 55% point to high home prices, and 46% say they can’t afford a downpayment or closing costs. Still, 64% of Americans say they’d be willing to make lifestyle changes for affordable housing. Among these, 29% would downsize, 24% would move out of state, and 19% would consider moving farther from family and friends. Gen Zers were most likely to say they’d relocate for affordability. Current homeowners report having reached their goals mostly through saving: 44% said they intentionally saved for a down payment, while others relied on grants (17%), family gifts (15%), or additional income (10%).  Source: Mortgage Point

Forget cookware and kitchen appliances. An increasing number of couples are forgoing wedding registries altogether and asking for something even more practical as a wedding gift: cash, to be put toward a downpayment on a starter home. A recent LendingTree survey found that 48% of homeowners who got married in the past two years asked for downpayment assistance from wedding guests in lieu of traditional presents. Additionally, 52% of newlywed homeowners said they downsized their wedding reception to afford a bigger home purchase. “Wedding gifts used to be dinnerware, silverware, candlesticks and other things that would sit in a box or cabinet and maybe get used once a year,” commented Matt Schulz, LendingTree’s chief consumer finance analyst. “Now, there’s less stigma in asking for money toward a downpayment or a honeymoon.” The survey also found that wedding plans interfered with many couples’ homebuying plans, with 35% of newlywed homeowners saying that their wedding delayed their home purchase, and another 36% saying wedding costs forced them to decrease the size of their downpayment. However, 26% of survey respondents said they put more money down on a home purchase because of their wedding, suggesting that asking for downpayment funds from wedding guests paid off. Downpayments are trending upward nationally. A Realtor.com report released earlier this month found that homebuyers paid $29,900 on average for a downpayment and 14.4% as a share of the purchase price in 2024 — both of which were record highs.  Source: Scotsman Guide

Flooding is the most common and costly natural disaster in the U.S., yet 96.7% of homes lack flood insurance, according to a report by ValuePenguin. In 2024, the average home sustained nearly $34,000 in flood damage, with the most significant losses linked to Hurricanes Helene and Milton, which devastated parts of Florida, Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia. “Climate change continues to drive sea-level increases and make weather more extreme,” said ValuePenguin Insurance Expert and Spokesperson Divya Sangameshwar. “Flood-prone areas around the country are expected to grow by nearly half in just this century.” Despite the rising threat, flood insurance isn’t mandatory unless a home is in a FEMA-designated Special Flood Hazard Area (SFHA). This leaves many homeowners financially vulnerable. Just one inch of floodwater can cause $25,000 in damage, yet many still choose to go uninsured.  Sangameshwar warns that low flood risk doesn’t mean no risk, and homeowners’ and renters’ insurance do not cover flooding. As climate-driven disasters intensify, the lack of coverage could leave millions financially devastated.  The report found that only 3.3% of U.S. homes (4.7 million) have flood insurance and 36 states saw a decline in flood insurance enrollment in 2024.  In addition, the average flood insurance claim in 2024 was $33,906.  Source: Newsweek